GST: Benefits of availing inward supplies form an Un-registered Person

If you are a small or medium business owner or a startup founder in India, you are probably aware of the Goods and Services Tax (GST) introduced by the government in 2017. GST is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services across India. It has replaced all other indirect taxes like VAT, Service Tax, Excise Duty, etc. GST has simplified the tax system and made it easier for businesses to comply with tax laws.

One of the benefits of GST is that it allows businesses to avail of inward supplies from an unregistered person. An unregistered person is someone who is not registered under GST and does not have a GST identification number (GSTIN). In this article, we will discuss the benefits of availing inward supplies from an unregistered person under GST.

What are inward supplies?

Inward supplies are the goods or services that a business buys or receives from a supplier. These supplies can be used for further production, resale, or consumption. When a business buys or receives these supplies from a supplier who is registered under GST, it is called a registered supply. When a business buys or receives these supplies from a supplier who is not registered under GST, it is called an unregistered supply.

Under GST, businesses can claim an input tax credit (ITC) for the tax paid on inward supplies. This means that businesses can reduce their tax liability by claiming the tax paid on inward supplies as a credit against the tax payable on outward supplies.

Benefits of availing inward supplies from an unregistered person

Availing inward supplies from an unregistered person has the following benefits:

1. No need to pay tax on reverse charge basis

When a business buys or receives goods or services from a supplier who is not registered under GST, it is not required to pay tax on reverse charge basis. Reverse charge is a mechanism where the recipient of goods or services is liable to pay tax instead of the supplier. However, this mechanism is applicable only when the supplier is not registered under GST. If the supplier is registered under GST, the recipient is required to pay tax on reverse charge basis.

By availing inward supplies from an unregistered person, a business can avoid the additional burden of paying tax on reverse charge basis.

2. No need to maintain records for inward supplies

When a business buys or receives goods or services from a supplier who is registered under GST, it is required to maintain proper records of the inward supplies. This includes the name and address of the supplier, the invoice number, the date of the invoice, and the amount of tax paid.

When a business buys or receives goods or services from a supplier who is not registered under GST, it is not required to maintain any records for the inward supplies. This reduces the compliance burden on the business.

3. Reduction in compliance costs

Compliance costs refer to the expenses incurred by a business to comply with the tax laws. These costs include the cost of hiring a tax consultant, the cost of maintaining proper records, and the cost of filing returns.

By availing inward supplies from an unregistered person, a business can reduce its compliance costs. This is because it is not required to maintain proper records or file returns for the inward supplies received from an unregistered person.

4. Reduction in tax liability

When a business avails inward supplies from an unregistered person, it can claim an input tax credit for the tax paid on the inward supplies. This reduces the tax liability of the business. The input tax credit can be claimed only if the inward supplies are used for further production, resale, or consumption.

Conclusion

In conclusion, availing inward supplies from an unregistered person has several benefits under GST. It helps businesses to reduce their tax liability, compliance costs, and the burden of maintaining records. However, businesses should be cautious while availing inward supplies from an unregistered person. They should ensure that the supplier is not required to be registered under GST and that the inward supplies are used for further production, resale, or consumption.